What Sets a Small Business Apart from a Large Business?

You probably hear terms like ‘small business’ and ‘large business’ quite commonly whether you are looking for software solutions, investment opportunities or something else. Sometimes, it can be difficult for business owners to figure out if what they own is a small business or a large one. The confusion is valid because you don’t often find clear definitions to help you distinguish one from the other. However, it is essential to know the difference so you can pick the right services. This is because most service providers design their service packages differently for small and large companies. There are also other reasons why you would want to know their differences.

Why Know the Difference

You need to know the size of your company because of the laws that apply to these entities. Large businesses have to follow a different set of rules and regulations than small businesses. In addition to that, several federal programs are available that are different for small businesses and large businesses. As an example, you won’t qualify for certain programs unless you are officially a small business and are entitled to the program. You can get into trouble if you think your business is small but the government deems it otherwise.

Also, keep in mind that when you operate as a small business, but spend like a big one, you can put your venture in trouble. So, what sets the two apart from each other?

The Differences between Small and Large Businesses

The Size

How do you determine the size? How do you know that the size of your business is small or large? The federal government has its ways of determining the size of a business. They will look at either the number of employees you have or your yearly receipts. However, the standards are not uniform across industries.

What this means is that a small business in one industry might not be small in some other industry. In most cases, your average yearly receipts have to be over $7 million for the federal government to treat your business as a large one. The number of your employees should be more than 500 for your business to be considered large.

However, this standard of 500 employees is more applicable to the manufacturing and mining industry. However, keep in mind the varying standards across industries. For instance, in some service industries, your yearly receipts could amount to over $21 million, but the federal government will still not consider your entity as a small business. The agriculture industry’s standards can be quite the opposite of that with the government treating businesses with average yearly receipts of more than $500,000 as large businesses.

The same rule applies to the number of employees as well. For example, if you are a part of the wholesale industry, and you have more than 100 employees, your business could be termed as a large business. On the other hand, if you are in the manufacturing industry, the government will write you down in its books as a small business even if you have 1,500 employees.

Internal Structure and Hierarchy

A large business will often have a more clearly defined structure and hierarchy. Almost every case in question will go through various departments before the company comes to a final decision. On the other hand, the structure is not fully defined or is not as detailed. The employees and the owner are not too far from each other. A complaint from a customer can reach from an agent to the owner pretty conveniently. On the other hand, there are several roles beneath the manager that can handle numerous tasks and take decisions.

Due to the hierarchy that normally exists in large businesses, they often delay their decisions. Contrary to that, small businesses take their decisions very quickly. The hierarchical structure also gives rise to a culture of workers performing their respective tasks only. In a small business, the same person could have multiple roles.

Financing Options

There is a stark difference between the financing options that small business and large business owners choose. Large business owners have good PR, a name in the market and some level of dominance in the industry. Such a position allows them to go for options like investment banks. They can naturally attract well-known investors of the country as well when they are in need of finance.

On the other hand, small business owners try to avoid bank loans because of the hardships they face when it comes to paying back debt. In most cases, small business owners rely more on their savings or funding from someone in their family.

However, websites like Funded.com work well to put an end to that difference. It is now possible for small and large businesses to get investments from well-known investors using the same platform and method. Funded.com is more like a network that draws investors from around the world and those in need of the investment on the same platform. With a unique idea, an impressive pitch and a proper team, small businesses can now get in touch with investors and finance their growth and expansion.

Salaries and Perks

Since large businesses are financially more independent, they can offer their employees attractive packages and benefits. Health insurance, dental insurance, yearly bonuses, provident funds, etc. are just some incentives that employees at large companies enjoy.

On the other hand, people working at a small company do not get such benefits in most cases. They can have attractive salaries, but a small business owner cannot afford medical insurance and comprehensive benefits for employees. It is one of the reasons why most of the people working at a small company often look for opportunities at large companies.

Nowhere does it say that small businesses have less potential for growth and expansion than large businesses. For this reason, small business owners should be confident in their efforts to grow. While large businesses have access to big bank loans and broad markets, even a small mistake in their predictions and estimates can result in huge losses.

On the other hand, small business owners face smaller risks when you consider the volume of their loss. Be sure to identify your business size and take advantage of all the benefits that the federal government has made available for small businesses.

 

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a Crowd Funding campaign or get a Business Plan by visiting us Funded.com

How Marketing Mix Can help Small Businesses Grow

If you are doing all you can to grow your small business but nothing is working, you might want to take a step back and reconsider your marketing mix. Doing the right type of marketing at the right place and at the right time requires some brainstorming, research and analytical approach. Take a look at what marketing mix is and how you can use this concept to grow your small business.

Understanding Marketing Mix

In simple words, marketing mix involves the techniques, tactics and strategies you implement to promote your product, service or brand. The marketing mix consists of four Ps: Promotion, Product, Place and Price. If you research the idea a bit more you will find that people are adding more Ps to the mix but their understanding is not as important as the understanding of these four factors. In the new definition of marketing mix, they have also included other Ps like: people, positioning, packaging and politics. Here is a basic understanding of the four essential Ps of the mix.

Product: It could also be a service—anything that you are selling

Price: The value that you want to obtain when you sell the item.

Place: The exact location where you sell the product.

Promotion: The mixture of activities and campaigns that you put in to spread awareness of your product and increase its sales.

To expand your business you have to achieve perfection in your marketing mix. You have to attain a balance in all the areas of the mix for a successful strategy. Working on attaining the right balance right from the beginning will help you lay the foundation of a business that faces least amount of struggle when it comes to expansion and growth.

Using Marketing Mix for Small Business’ Growth

To create the right marketing mix, you have to understand your product at its core. When it comes to the product, you have to have a full understanding of it. What is your product? What problem does it solve? Even if your product solves a problem, have you designed to in a way that a potential customer would look at it and know what it is supposed to do? Once you know your product well, you can get to the other Ps of the marketing mix. Here is a little understanding of how marketing mix works.

  • Tying Product with Price

It can be one of the toughest things for most business owners to do. While it is a job for the marketing department, you don’t always have a dedicated marketing department when you are still a startup. When you are about to price your product, you have to consider a lot of factors. First, what type of audience does your product appeal to? What materials have you created the product with? How much competition you have in the market? What is the buying power of the market for which you have designed the product? It is only after taking all of these factors into consideration can you price your product appropriately. Keep in mind that when you are a new business, you cannot charge your customers for your value because there is no value for customers in buying your product at this stage.

  • Tying Price with Place

You cannot be thinking of one individual component of the marketing mix at one time. You might have created the right product but the question is “are you selling it to the right people?” What if your product is more appealing for teenagers but you are targeting people over the age of 35? What if you know your target audience but are placing the product in the wrong places? Maybe your item is more sellable online but you are putting it on retail store shelves. Now that you know the “place” where you need to sell the product, you have price the item aptly too. For example, a product that you have designed for teenagers should be affordable within their pocket money.

Moreover, your product might be appealing for a niche market but you might have priced it too low. As a result, too few people would buy it and your revenue will not cover your expenses. You have to be sure that you cover your costs within the limited number of purchases that occur.

  • Tying Place with Promotion

When looking at place and promotion as a combination, you have to be sure that you are promoting your product in the right place. Is your product more appealing for women than it is for men? If yes then you should consider promoting it on social networking platforms where women are more active e.g. Pinterest. Moreover, your promotional activities should match the place. For example, if you are promoting in an area where there are Oakland Athletics fans, you don’t want to be wearing San Francisco Giants’ t-shirts and gear.

  • Combining All the Ps

Once you have created the right product, priced it perfectly and strategized your promotional campaigns, you have to bring the product in the right place so all the Ps work successfully. Creating the right product, pricing it right and promoting it with passion but in the wrong place will result in disappointing response. Just because you are good with one of the Ps does not mean you will be successful in others as well.

Now that you have a good idea of tying the Ps together, you should have a complete road plan of how you are going to sell your product. It will require a lot of working at initial stages. You cannot know your market unless you do some surveys and spend time collecting data about the market. At the same time, you have to perform a thorough research of the market to know how you will price your product. When it comes to promotion, you will have to come out of the conventional methods and think more digital. You might as well set up a dedicated team for social media marketing and website analytics.

 

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a Crowd Funding campaign or get a Business Plan by visiting us Funded.com

The Right Way to Arrange and Manage Small Business Funds

The sustenance and growth of a business depends on how well it manages the funds available to it. The first step is to arrange the right funds based on a proper business plan. As a business owner, you don’t want to end up getting more funds than you need because you will then overly spend the money and end up with debt that’s hard to pay off.

The second step is to manage the funds properly and invest them for short-term and long-term benefits both. The biggest challenge for most new businessmen and entrepreneurs is capital. They either don’t know how to raise the money and fund their business, or mismanage the funds they have available.

Raising Funds for a Small Business

Looking at how easy it has become to arrange funds for businesses today, there aren’t many excuses left for entrepreneurs as to why they were not able to start their business. The first thing you want to keep in mind when raising funds for your business is to avoid accumulating too much debt. Avoid any kind of debt if it is possible. If you have saved some money from the jobs you have been doing, use that money to fund your business. If your parents or someone in your family is willing to fund your business, do not be hesitant to accept their help.

Among many good options to arrange funds for your small or starting business you have microloans. Microloans, as the name clarifies, are small loans. Since the amount is not that big, it is easy for the borrower to return this money. In most cases, microloans will not be more than $50,000. The good thing about such loans is that they are easy to obtain even if you don’t have the best of credit score. In many cases, you will get the loan amount credited into your bank account within two weeks after applying. However, the biggest drawback of microloans is that they have a huge interest rate associated with them.

Even if the interest rates are not higher than those on credit cards, they will be much higher than traditional loans. Moreover, if you don’t pay back your microloans as per the schedule, it will hurt your credit score as well.

Another way you can avoid burying your business under debt and still receive enough capital to fund the business is by having a partner on board. Rather than starting a sole proprietorship, you should consider making a partner. Making partners is easier when you already have a running business, even if it is a small one. The partner will come with their personal investment and help you fund your business. In fact, you could have a partner on board without offering any investment yourself. You can agree to be the service provider and allocate the partner to fund the business monetarily.

One of the best small business funding methods today is pitching your business to angel investors on online platforms. You can take the example of Funded.com where entrepreneurs benefit from a huge network of investors willing to invest in even the most unique ideas. The best thing about online websites is that you don’t have to do the searching. You just have to work on creating an impressive presentation and the website does the rest of the work i.e. they make you visible to their large network of investors.

Managing Funds of a Small Business

Once you have arranged the funds for your business, it is time you get a grip on how you will spend that money. The most sensible thing to do here is to ask for investments only after you have created a business plan which clearly states how you will be spending the investment money. You don’t want to spend the invested funds randomly. Here is how you should manage your funds.

  • Separate Business and Personal Account

The first sign of your seriousness with your business is you separating your personal account from your business account. If you have use your personal account for your business as well, you will never know how much money you made from the business, how much you spent back on the business and how much you spent on your personal needs.

  • Be Cost Cutting

You don’t make a business successful by just increasing its revenue. The true art is to reduce the costs of running your business. Work on your B2B connections to partner with entities that can help you reduce the costs of manufacturing and production. Pinpoint the marketing campaigns that produce converting customers and stop spending money on campaigns that only bring in traffic but contribute nothing to conversions. Investors think the money you spend on your operations is money wasted. You want to spend money on productive processes. On the cost cutting side, you should use energy-efficient appliances, all-in-one office equipment, virtual office space, etc.

  • Hire Professionals

Sometimes, you have to spend more to save more. In some areas, it is the professionals who can help you the most. For example, when it comes to tax filing and the calculation of your tax deductions you want to have a professional on your side. Professional accountants can help you reduce your taxable income by working on your business expenses and figuring out any deductions and exemptions that your business qualifies for.

  • Create Cash Reserve

While you are managing your funds and running your business successfully, you want to put some money in cash reserves as well. It will be hard for you to manage a cash reserve amount if you are already making thin profits but the long term benefits of this sacrifice are huge. Your cash reserve saves you from obtaining loans and hence getting buried underneath debt.

Conclusion

Keep in mind that having a lot of money in your bank account does not guarantee a successful business. It does not matter how much money you have, a business owner who does not manage his/her finances properly will end up burning even millions of dollars without making a dime in profits. Use the options you have available today for funding the business. Do not think they will not work for you before you even try them.

 

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a crowd funding campaign or get a business plan by visiting us Funded.com

How to Do Valuation of Your Small Business

When you are looking forward to starting your own small business, you will have to familiarize yourself with a lot of new ideas. One of the important concepts that every business owner must be aware of is business valuation. So, what is business valuation, what is its importance and how do you do the valuation of a business? Read on to know.

Business Valuation

As the name clearly suggests, business valuation is the act of finding the value of your business in the market. It is just like finding the value of a house when you are about to sell it. You can use multiple methods to find the value of your business. However, it is always in your best interest that you hire a professional valuator to do it for you. They know multiple methods of valuation and will make sure that the final valuation is error-free.

The Importance of Business Valuation

The first thing you should know is that it is imperative to do the valuation of your business not for one but many reasons. The first reason that comes to mind is the selling of a business. When you want to sell your business to someone, you have to set a price for it. Sometimes, the owner of a business would want to plan succession i.e. the transferring of shares to an heir. The buy sell-agreement that they use for transferring the shares to their heirs requires them to know the value of the business.

If you have ever pitched your business to an investor, you must be aware of the fact that they always ask for business valuation. They are trying to assess a few different things based on the valuation you give them. First, they want to know how much their investment is worth. Secondly, they want to know whether or not you are fair with your investment demand if you are offering them equity for their contribution.

The Three Business Valuation Methods

Even though there are other business valuation methods as well, you will be reading about the three most common ones.

1. Valuation Based on Market Value

You also call this method the relative valuation method. It is a fairly straightforward way of knowing how much your business is worth. The valuators have to look at other businesses in the market that are similar to yours. They look at their selling prices and determine the value of your business based on those prices. Now, as simple and plain as this method sounds, it does not always work. For example, you don’t find the records of sole proprietorships that easily. So, when it comes to the valuation of a sole proprietorship business, finding records of similar businesses can pose quite a challenge.

2. Valuation Based on Business Future Earning Potential

This is an ingenious way to know the value of a business and one that helps you a great deal when it comes to obtaining investments from interested investors. This is quite a realistic approach but pitching it to investors can be a daring task. First, you have to make sure that you have done proper calculations based on your current and past records to come up with the future earning potential of the business. Secondly, you have to stand confidently with your decision because investors would often question you and your integrity a lot when they deem that you have valued your business much higher than you should have.

Capitalization of past earning is quite a frequently used approach to do this type of valuation wherein you look into the past financial reports of your business, smooth out any extraordinary earnings or expenses, and find the product of the normalized cash flow with a number referred to as capitalizing factor. It is not the only method used for determining the value of the business under this category. Another frequently used method is based on discounted future earnings.

3. Valuation Based on Assets

It is clear from the name that in this type of valuation you find the worth of the business based on the assets it owns. Once again, there are multiple ways to approach this valuation too. A common way to do this type of valuation takes liquidation of the business into account i.e. calculate how much money you would have if you sold every asset that your business owns and then subtract every liability from that sum. The other way is based on the ongoing status of the business wherein you look at the total value of your assets on the balance sheet and subtract your existing liabilities from them.

Once again, it is the sole proprietorship that poses challenges when it comes to doing the valuation of a business using this approach. Why the valuation of sole proprietorships is difficult using this method is because the owner in this case does not use the assets for business purposes only but personal as well.

You now know from the information given above that it is imperative for you to complete the valuation of your business. Whether it is for legal purposes or to sell your company at the right price, knowing the right value of your business is crucial. In the end, you should prepare your business financial documents regularly to help you find its value with convenience.

 

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a crowd funding campaign or get a business plan by visiting us Funded.com

What Makes up a Perfect Business Plan

 

Whether you have a small business or a large one, you have to have a business plan in order to set a path for it. A business plan is more like a manual or guide that lists your goals in an order, and how and when you will achieve them. It is even better to have a plan B if things do not work out the way you expect them to. But an important question you should ask yourself is “what makes up a perfect business plan?” What are the important factors that you have to take into consideration to create the perfect business plan?

Of course, you can’t make a plan randomly because business matters are a game of numbers—you have to be precise and accurate.

Describing Business and Writing a Summary

The first and foremost part of any business plan is the executive summary. It is a summary of what’s included in your business plan. You have to keep in mind the word “summary” i.e. you are supposed to summarize everything. You will face two challenges when you do that. First, you will have to find the most selling and appealing parts of your reports to grab the attention of the readers of your business plan instantly. Secondly, you have to find a way to shorten all the descriptions. Bear in mind that the details are in the plan itself, so you have to efficiently summarize all the points.

Furthermore, you have to explain the industry and your business. At this point, you want to talk about what industry your business serves, what the industry looks like and how much potential of growth your business (and the industry) has in the future.

Market and Competitor Analysis

At this point, you will have to put in some work to gather the details that will fill this section of your business plan. You have to know the market that you are about to target. For this, you will have to analyze the market and the sub-markets within it. By doing this, you are trying to paint a clear picture of your target audience. Without this type of analysis, you could end up selling the right product to the wrong people, which means your business will not survive. As you are describing your target audience and how you will approach them in the most effective way possible, you will have to do some analysis of your competitors.

It is just another level of market analysis. You want to get a good idea of what your competitors are doing to run their similar businesses and how much they are succeeding with their strategies. You should also pinpoint their weaknesses and why certain strategies are not working. When you have a business with many competitors, your investors will always ask you several questions about your competitors. They do this not only to know how knowledgeable you are about your target market but also to figure out if what you are about to do is going to work at all.

Development and Design

This is the section where you will define not only the design of the product but how the development takes place. Are you creating the product in your garage or do you have manufacturing plant working for you? How do you get the materials for creating the product? Are you producing your product within the country or outsourcing the production? In case of either of the options, you will have to explain why you have chosen that path. Investors will also ask you how much it costs you to design your product and make it available on the shelf.

What they don’t want you to do is pay more for the production and design of your product than you should. If there are other options available but you are sticking to the expensive ones, it will show them either the stubborn side of your personality or the less knowledgeable.

Costs of Operation and Management Planning

The ongoing processes of the business are the most important ones to pay attention to. How have you planned to take care of the daily matters? How have you assigned the roles and why have you assigned them to certain individuals? At this stage, you also have to talk about the costs of operations. You have to keep your costs realistic and justify that what you intend to spend is not an excessive by any means. In the costs of operations, you will also have to have an estimate of how much you will be spending in salaries. You can include this particular piece of information under the financial planning section as well.

Financial Planning

In this section you have to describe how you intend to finance the business. Are you using your own money to start the business or have you borrowed it from a family member? What kind of debts are there on your business. Debt is deadly for a business, so you want to have a very strong plan on how you will handle the initial debt when starting the business. You also have to show your management of the financial resources and knowledge to prove that any loans that you are taking for the business will be paid off in time and with ease.

If you have given a detail of various loans that you intend to use for your business, you will also have to state how you will use the money. Your usage of the money should be precise. At no point should the investors get a hint that you are going to use the money for something personal or something that will not benefit your business in any way.

Conclusion

Last but not least, make projections a part of your business plan as well. You will need to ready balance sheets and income statements for the coming years. It is imperative to know here that business plans are just assumptions, not facts. You should always expect things to go a bit away from how you planned them. However, such minor setbacks should not stop you from going forward and turning your small business into a large one.

 

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a crowd funding campaign or get a business plan by visiting us Funded.com

What the Right Team Means for a Business

Just because you have a small business today does not mean it is going to remain small forever. Of course, you have to work to expand your business and turn it into a company that serves a worldwide audience. Whenever it comes to the expansion of a project, the first few things that you mostly think about are costs, taxes, cash flow, etc. What many small business owners often ignore is the right team that is crucial not only during the process of expansion but to keep the business afloat for many years to come.

The Need for a Team

The first thing that one wants to understand is why they need a team in the first place. If you have a small business and you never want to grow it, you might never need a team. However, for any businessman who has the mission of expanding with the passage of time, they need a team. First of all, you cannot act as the one-man-army. As you expand your operations, add more branches to your business and get more clients to work with, you will have to distribute those responsibilities. You can manage some of them with great efficiency, but if you think you can manage them all perfectly, you might be wrong.

You might not have paid attention to this particular piece of detail but when you try to manage everything on your own, you turn your own employees against you. They feel as though you do not trust them with the responsibilities of your business. Furthermore, they don’t see any chances of growth and this is why they do not plan to stay with you for a long time. This reduces the retention rate at your company to a low level.

Not just that, your core team is even more important when you are in a startup stage. When you present your business idea to the potential investors, they will consider several metrics to find out how successful their investments will be with you. One of the indicators for them to identify a successful startup is its core team. If your idea is unique, you have everything else in place, but your team seems to lack confidence or is missing important persons, there is a big chance you will not get any investments.

What to Consider When Building a Team

There are quite a few things that you have to consider when building your core team. Here are some of the most important ones.

  • Be Personally Involved

The first and foremost requirement of building the right team is for you to involve yourself in the process personally. No one knows your business better than you, and the many requirements to run it successfully. You can talk to an individual and know if he/she is the right person for your team. You will have to talk to everyone in person to know how they will fit or not fit. Convince yourself that this is an important process and manage enough time from your schedule to interview the potential candidates.

  • Consider Vision Alignment

When it comes to adding people to your core business team, it will be wrong to focus solely on their qualification and experience. The most important factor to look at is their vision. Do you think they are comfortable with your vision of your business? Do you think they are not just comfortable but also passionate about the same vision? It did not matter how talented, qualified and experienced they are because if their thoughts do not align with yours, they will always remain a misfit. Hiring the person who does not agree with your scope of the business is a huge mistake. Your and their position in the company will be like two people pushing a vehicle from the opposite sides.

  • Look for Leaders

You must realize that you are building a core team for your business; not hiring employees to fill certain positions at the company. Do not think of your team members as tires in a vehicle which you can replace when one goes flat. Every individual you make a part of your team should have leadership qualities—the qualities to lead the team in your absence or the absence of the appointed leader. What’s even more important is that these are the individuals who will act as your right hand. You cannot expect your business to keep on elevating and not experience any hiccups.

It is the people with leadership qualities that help you pull the business out of hard times with their will to lead and the undying attitude.

  • Involve Other Team Members

If you already have a small team, but you are looking for more people, you will have to make the existing members a part of the hiring process. When you do this, it will make them feel like a valuable part of the company. Secondly, it will also show you whether you and your existing partners are on the same page or not. They should also know what type of talent is lacking in the team just like you do. On the flip side, it will also show the potential candidates how unified your approach is. They will know they are becoming a part of a strong team and prepare mentally to fit in.

  • Consider All the Options

You have to wait before you can make the hiring decision just like consumer surveys the market before making a purchase. Some candidate might seem like a perfect fit, but you can’t reach a final decision unless you have talked to all the remaining candidates.

Creating the perfect team is only one step in the right direction. The more important part is to keep the team united and in unison. Do not forget that a melody only sounds good when all the instruments are playing in harmony. So, if you are a startup or a small business, be sure to start delegating responsibilities to the right people and hiring the ones that are missing.

 

Access our network of Angel Investors, Venture Capital or get instantly matched with a Lender. Create a crowd funding campaign or get a business plan by visiting us Funded.com

Importance of Location for Your Small Business

If you are thinking of starting a business that benefits from walk-in foot traffic, you have to pay attention to the location you choose. Whether it is a retail store, a motel, a restaurant or a spa, the right or wrong location of the business can decide its fate. Yes, some businesses reach the heights of their success at the oddest locations possible, but it is not very wise to keep exceptional cases in mind while starting a business. So, what role does a location play in the success of a business? Here are some important points for your understanding.

The Foot Traffic Matters

Now, the area you choose must have ample foot traffic for you to take advantage of. Of course, you are a business that benefits from the foot traffic, so you need a lot of it. For this purpose, you first have to look for commercial areas where people normally go for shopping. If there is no place available in the commercial area, you want to explore further to look for locations from where a lot of people pass. Think about your marketing as well. If you are going to use billboards, neon signs or vinyls for marketing purposes, you want them in places where people can see them. The more people there are at the location of your business the more they will notice your marketing signs.

If there aren’t a lot of people at the location that you are considering for your business, you are already at a disadvantage. In fact, it shows that people don’t naturally walk in that direction when they are looking to do business. It is the same way on the internet. You bid for keywords that have the highest number of searches. You want to put your banner ads on websites that have a lot of traffic. In short, foot traffic matters.

The Buying Power of the Community

Before you choose the location, you must know the type of audience your business attracts. Are you a fine dining restaurant? Will you be selling low-cost meat burgers? You have to decide your location based on the type of your business. If you are opening a fine dining restaurant, you want to open it at some place where people have the buying power to afford expensive foods. It requires a lot of research for you to be able to find such locations, but the time you spend researching will always pay off in terms of good return on investment.

Businesses in Proximity

A lot of businesses try to avoid having their competitors located close to them. But believe it or not, it is extremely beneficial for small businesses to be located near other big businesses. By doing this, your business benefits from the traffic of other businesses. It solves a lot of problems that can be detrimental to businesses at locations where there are no other businesses. The first benefit is that you already have foot traffic, so you can already move on to the next step of pulling those potential customers into your premises. Secondly, you don’t have to force people to walk away from their daily routes to come and do business with you.

If you already have a lot of similar businesses located around you, people already come there for that type of business. So, if you are opening a boutique in an area where there are many boutiques already, you can rest assured that people already come to this market for buying clothes.

The Expenses of Operation

This item has to be on your checklist of choosing the right location for you business, otherwise, you are going to regret your decision. Sometimes, you find a place that has high foot traffic volume and lots of other similar businesses in the vicinity, but the operating expenses are through the roof. The businesses that have already established might have adjusted according to those expenses, but things will not be the same for a starting business like yours. You want to keep your operating costs as low as possible. What if the area you are going to has private companies providing electricity?

What if the availability of clean water is a challenge at your desired location? What is rent of the building if you are considering renting a place for the business? A starting business already has very thin profit margins. Add high operating costs to the equation and even those little profits will be gone.

The History of the Location

If the location you have chosen has proven to be ominous for many businesses in the past, you have to dig deeper even if everything sounds right. When a lot of businesses have opened and closed at the same location, it is an indication of something that’s wrong but not visible with a casual survey. You will have to be very careful in finalizing such a location. If nothing, it could be the owner of that building that might be an issue for its renters. Some landlords are overly interested in their own profits and do not really care how much damage they are doing to a starting business with their demands.

In fact, many small businesses need some favors and flexibilities from their landlords for them to be in a stable position. Some building owners will even lower your rent to allow you to establish first. If the landlord’s reputation is okay, check to see that the place is not a frequent picnic point for robbers.

 

Final Words

Many of the things mentioned above might sound basic or understood to you, but you will be surprised to know that many new businesses shut down because they fail to realize the importance of these same points. Believe it or not, you cannot take any of the points given above for granted. And while they might sound very understood and intuitive, lack of time and capital can often push you in a direction that you don’t want to go in. Stay tenacious to this checklist because a compromise at this point will give birth to several compromises in the months to come.

 

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Do you have enough reserve money for your business?

It is common for entrepreneurs and new business persons to have very high expectations of their businesses in the beginning. They are often excited about how they will uniquely market the business and provide customers with something they have not tried before. A practical entrepreneur will look at both sides, the positive and negative. While there is nothing wrong with keeping your expectations high, it’s the “hope for the best and prepares for the worst” that seems to work more in life, both professional and personal.

So, it does not matter how unique your product is or how perfectly you have designed a plan to approach your target audience; you will always need some cash in reserve for the hard times. The more important question is “how much money should you have in reserve for a small business?”

How Do You Calculate the Size of Your Reserve?

The first thing you need to know here is that there are different types of businesses and thus they need to do their calculations differently.  Your first decision has to be whether you want your reserve to be enough to cover three months of costs or six months of costs. Finance experts have varying opinions, but it is up to you to decide whether it is going to be three or six months. Once you have made that decision, it is time you calculate the size of the reserve you will need. The information coming ahead is based on a six month’s reserve strategy.

As mentioned earlier, different businesses have to make calculations differently. If you are a business with running that remains pretty much the same throughout the year, you just have to look at your cash flow rate from the cash flow statement. Reviewing at least six months of statements is a good idea. If your expenses vary only slightly month after month, all you have to do is come up with an average of those six months of expenses. This will be the monthly expense of your business. Now, just multiply this average by six because you want to keep a reserve of six months.

However, you have to calculate differently for a seasonal business. Again, you will look at the cash flow statement of the past six months, but this time you will not find the average of all the six months. You will separate the month with the highest costs (expenses) and the months with low expenses. Take the five regular months and calculate the average monthly cost based on the data you have. Now, to calculate your six month’s reserve, multiply the average you have just calculated with five, and then add the cost of the highest month to that product.

What if you are a new business and you don’t have cash flow or burn rate reports for past six months. In this scenario, you will have to do the math even more strictly. You will have to work on projections and estimates. Calculate what your monthly expenses will be and base the size of your reserve on that projection. Of course, you should make adjustments as soon as you realize that your expenses or more or less than what you had projected once your business starts running.

What about Keeping a Bigger Cash Reserve?

The cash reserve is a cushion for your business and why wouldn’t you want the cushion to be bigger? Here is the thing; keeping a reserve that attempts to cover more than six months of expenses is going to be harmful to your business. What you will end up doing is putting the money that you can use in your business for its progress in the cash reserve where it will wait for the hard times to come before you can use it.

What you might not realize is that you could use the same money for business development, better marketing, and further expansion. Experts say you should not touch your cash reserves unless there is no other way out. With that in mind, you might never touch your cash reserves and use them to expand your business even when you have the opportunity.

Building a Cash Reserve

The biggest challenge is building a cash reserve because it is more like an expense for your business. You have to put some money from your profits into a separate account that serves as your business’ cash reserve account. What this means is that you will have to live with shrunken profits for some time. However, planning these things can help you. For example, fund your business wisely right from day one.

Unless your business explodes and becomes a big thing right from day one, you have to rely on proper financing to grow your cash reserves. One thing you want to keep in mind here is that your cash reserve is not just for the hard times, but it can help you on other occasions as well. Let’s say your company makes napkins, and a worldwide fast food chain places an order that goes way beyond your capacity. How do you arrange the materials to fulfill that order? While financing is an option, it is much better and safer to rely on your own cash reserves like many big companies do.

Final Words

It is a mistake that many new small business owners make when they think they won’t need any reserves in the back. Things can go wrong in a thousand different ways and you cannot predict all of them. You don’t want to be scrambling for cash or loan right from the second month of starting your business. It is best to have a financial advisor with you right from the start who will tell you how you can build your cash reserve without affecting the ongoing progress of your business and completely eating away your profits.

 

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Just Because Your Small Business Is Failing Doesn’t Mean It Has to Shut Down

Everyone who starts a business starts it with great passion, strong ambition, and a clear vision. However, things don’t always go the way the founder of a business wants them to. When people see a failing business, they can wrap up the whole discussion within a second by saying something along the lines of, “Just shut it down.” What they don’t realize is that shutting down a business is a much more difficult decision than starting one. No matter how unadvisable, there is an undying emotional attachment of a business owner with his/her business. So, what can you do if your small business is not performing well?

Pinpoint the Reasons for Failure

What do the doctors do when patients go to them with an illness? They don’t hand over a bunch pills, and tablets straight away do they? The first step, of course, is the diagnosis of the issue. Once the doctor knows the problem, he/she can prescribe the right medicine. This is exactly what you have to do with your business. The first thing you have to do is make efforts to pinpoint the reasons and problems that are causing your business to fail. If you don’t have the expertise, you should hire a professional accountant to look into your profits, losses, incomes, and expenses. Maybe you are doing business perfectly, and it is just your tax calculation that is causing the damage.

Don’t be the Business

Many times it is the owner who causes the failure of a business. When you think you are the business, this is the recipe for a business’ failure. You must learn to delegate responsibilities and become comfortable with the idea of taking help from others. Don’t act like an owner when it comes to using the money that your business making. Keep yourself on a salary, and this salary should be based on the current condition of the business. Make the team and involve some of your best employees in deciding what the solution to the problems should be. You are in the business, and so you will see everything from your perspective. A neutral person will tell you what they find lacking in your business strategy.

You have to be very patient and understanding when you ask others to help you. They might point out factors that you might not like. They might even raise questions about your strategy, and that’s when you have to show real patience.

Use the Funding Options

Sometimes, you just start on the wrong foot. You are so eager to start your own business that you don’t even arrange the proper capital to support it. You might spend too much on arranging your office furniture and be left with nothing to spend on marketing. In this particular situation, you want to arrange funds to meet the needs of your business. Whether it’s marketing, the lack of staff or the wrong location, you can fix any of those issues when you have the money. If you think your business is built on a unique idea and that more people need to know about it, you should look for ways to arrange the funds.

Look around, and you might come across friends or family members who could help you arrange some funds. If you don’t have any contacts that can help you with business funding, you should consider online crowdfunding. You always have options like Funded.com available to arrange the right funds to support your unique business ideas. The thing about online funding is that you can always find people who understand your idea no matter how unique it is.

Set Goals and Measure Their Progress

No matter how hard the times are for your business, there is always going to be a way out. However, the emotional setback and mental stress that come with business failure can eat up your positivity and optimism. Despite such hardships, you have to know how to set realistic goals and achieve them. Set defined realistic and achievable goals and measured the progress. When you are facing hard times, you have to set small goals. It is important at this point that your goals are defined in the form of numbers. The ambiguity of goals makes them less achievable. If you are losing customers and you want to retain them, you must first know the rate at which you are losing them.

Now, the example of a weak goal at this point will be setting something like, “I will not lose customers in the coming month.” That’s an ambiguous goal, and no set point will define how badly you have failed or how tremendously you have succeeded. Instead, you should set the goal by first defining a period during which you will calculate customer retention or attrition. Secondly, you will calculate the customers acquired during that period. Thirdly, you must know how many customers you had at the start of that period. You will now set your goal regarding retention percentage during that period.

Reconsider Your Pricing Strategy

More often than not, businesses fail because the owners don’t set the right price for their product or services. You might be pricing your products too low or too high. What if you have already started charging your customers for the value you haven’t provided them? A business must price its products/services to cover their expenses. Later, the business can start making a profit. The third and last stage is to charge for the business value. You have to be constantly looking into your customer data to know how much value your customers find in your services/products before you charge them for it.

As mentioned earlier, it much more difficult to shut a business down than it is to start it. Furthermore, you cannot let go of the mission and vision that’s associated with your business that easily. For this reason, you have to show tremendous perseverance, patience, and determination, and try all your options before deciding to shut down your business.

 

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Small Businesses Must Understand What Marketing Means

The success of a business depends greatly on how effectively it markets itself, its products and its services. The real challenge with marketing is that it is one of the broadest concepts that any businessperson and entrepreneur have to deal with. Every business has its specific marketing needs, and yours does too. If you have a small business, you must understand marketing in its depths and the many techniques that will help your business grow and expand. A lot of the small business owners believe that having a website and doing some seasonal material marketing is enough for them, but they are wrong.

Marketing has completely changed in the modern times with “digital” being the main focus. A conventional approach towards marketing will not help you achieve the goals you have set for your business.

Understand the Concept of Marketing Mix

Before you start marketing your business, you have to understand the concept of the marketing mix. Marketing mix consists of price, product, promotion, and place. While many other factors have been added to the mix recently, these four Ps remain the strongest ones to date. If you can understand the concept of the marketing mix, you will ensure allocating strict budgets and still getting the best ROIs from your marketing campaigns. You must bear in mind that spending too much on marketing does not mean you will always be successful.

Your successful marketing strategy has to be a mix of the four Ps. Before you start promoting a product, you must know the product is complete and in an acceptable form. Once the product is complete and you want to promote it, you have to make sure you promote it in the right place. You don’t want to be selling air conditioning units to the people of Siberia. Now, even if you created a great product and are promoting it in the right place, you won’t be able to sell it well if you haven’t priced it right.

You understand at this point that you have to pick every “P” of the marketing mix one by one and see if your strategy touches all of them. An important point to remember here is that the concept of the marketing mix is not limited to the “planning” phase of your marketing efforts. Even when you have executed your marketing plans, you have to keep measuring these four factors. If your efforts are not yielding any profits or positive ROIs, look at the four factors and try to find out which one has not been executed properly. Maybe you are promoting the right product at the right place but to the wrong people.

Base Your Marketing on Data

If you don’t know already, the more relevant and popular term than marketing is data-driven marketing among marketers. It is clear now that marketing without data is less effective and less practical in the modern times. Today, you have dozens of different tools to collect data about your target audience. You use these tools because the data you collect gives you deep insight into your market, what your customers want and what puts them off. In the online world, the process of data collection starts from your website. On your website, the data you can collect include the demographics of your visitors, their recent interests, their path to reach your website, etc.

There are other means of collecting data about your customers. The thing is that you will collect data from many different channels and in many different formats. Being able to view this data in one place and taking effective action on it is what the real challenge is. Companies are now looking for solutions to manage their digital marketing campaigns in one place, regardless of the nature of those campaigns. Data-driven marketing also allows you to create more personalized campaigns that are more effective in persuading your customers to use your products/services.

Look at the Right Numbers

One huge mistake that many small business owners make is focusing on the wrong numbers. You might have a great website, a strong marketing strategy and a lot of data to target your efforts in the right direction, but you can’t get any benefits until you look at the right numbers. Looking at the right numbers means that you measure the success of your marketing efforts by keeping up with the most important KPIs (key performance indicators). For you to measure the KPIs, you must set associate goals and targets with your marketing campaigns.

So, when creating a landing page for your product and get a lot of visitors on that page, it does not mean anything to you unless you are measuring some KPIs. In the case of a landing page, your most important KPIs will be the number of visitors, number of converted visitors and the sources from where the visitors are coming. Now, focusing on the wrong number would mean you are looking only at the number of visitors coming to your landing page every day. The number of visitors is only telling you that your marketing efforts have been successful enough to bring the visitors to the landing page. But how does that benefit you in any way if you don’t earn anything from those customers?

That’s where you have to measure the conversion rate. The conversion rate will tell you how much you are making from the visitors that are coming to your landing page. By focusing on conversion rates, you will put more money towards marketing campaigns that are bringing the most potential traffic, i.e., the traffic that’s converting the most.

Now, no matter how benefiting it is to focus on your conversion rates, it is still only one side of the picture. The right numbers here are your acquisition costs. If you spend on every acquired customer is $100 but you are obtaining a value of only $20 from that customer, this type of marketing is not good for you. You always have to look at positive ROI, i.e., your returns on the investments must always be higher than the amount of money you have invested in a marketing campaign.

Conclusion

So, you know at this point that marketing is a profound concept and you have to understand it in its depths to it successfully. Large companies spend millions of dollars every year on just marketing. They must find some value in this activity to spend that much money towards it. On the other hand, small business owners can often ignore the importance of marketing. They are always focusing on short-term progress and return. If they don’t see any significant results quickly, they stop spending on marketing and start looking for faults and shortcomings of their products/services.

It will pay off in the long-term to start using the right marketing tools right from today. Keep in mind that marketing tools are designed to handle different phases of marketing. While some tools help you market your products and services, others are more analytical. Another category is of tools that help simplify the use of both the types of tools. If you are thinking of starting a business or have set the foundation for a startup already, be sure to give marketing the attention that it deserves.  

 

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